Link: BetaShares
Most people invest in shares, bonds, and real estate. Shares and real estate tend to perform well during an economic boom. Government bonds are seen as safe investments since they are backed by government, and many people hold government bonds or government bond funds in addition to growth assets such as shares and real estate in order to diversify. But what about commodities?
The word "commodity" is not perfectly clear, but investing in commodities involves investing in such things as gold, oil, soybeans, wheat, and livestock. It is an investment in hard assets that are more often than not necessary for humankind. Investment in commodities are perfect not really for periods of economic booms or economic recessions. Rather, commodities are excellent to hold during times of stagflation, that is, a combination of stagnant economic growth and inflation.
One way of combating massive inflation is to adopt The Alpha Strategy, that is, hoarding essentials such as rice and toilet paper in your home. The less extreme option is to buy a commodity ETF.
For Australians, a firm called Betashares provides a diverse range of ETFs, including an ETF that invests in crude oil futures. I am thinking of using my margin loan to purchase a good chunk of commodity ETFs via Betashares but I am unsure if I should. Perhaps shares in resource companies already provide sufficient commodity exposure. The fact the Australian dollar is a commodity currency also provides some exposure. Then there is the worry about the safety of synthetic ETFs (read Quant Congress USA: Avoid synthetic ETFs, says Avellaneda - Risk.net) with some saying they are fine for short-term trading but not appropriate for long-term investing due to counterparty risk.
If anyone has any deep knowledge on this issue, please comment.
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